Posted: February 23, 2016
Written by: Edward D. (Ned) Brown
Most practicing Manitoba lawyers know that if a corporate client wishes to carry on business in Manitoba, where the corporation has been incorporated in a jurisdiction outside of Manitoba, it is necessary for the client to be registered under The Manitoba Corporations Act (Section 187 of the Act). What exactly does "carrying on business" mean?
Section 187(2) of the Act provides that a corporation is "deemed" to be carrying on business where:
(i) it has a resident agent or representative, or, a warehouse, office or place of business in Manitoba;
(ii) its name and a Manitoba address is listed in "a Manitoba telephone directory" (increasingly insignificant with the rise of internet communications);
(iii) its name and a Manitoba address are included in any "advertisement advertising the business or any product of the (corporation)";
(iv) it is the registered owner of "real property" situated in Manitoba; or
(v) it otherwise "carries on its business or undertaking" in Manitoba.
It appears that it is an extra-provincial corporation's "presence" or degree of connection in or with Manitoba that requires registration in this province.
But what about the case of a corporation which has been incorporated in, say, Ontario, which is the true or beneficial owner of an asset (typically, but not necessarily, real property), situated in Manitoba, where the property is registered in the name of a Manitoba corporation which has formally declared that it holds the property as a trustee for the Ontario corporation? Does it matter that the (express) trust is a "bare" trust, where the trustee has no management, administration or discretionary rights or powers to deal with the trust property, all of the same belonging to the Ontario corporation? Assume further that none of the above indicia of a Manitoba presence or connection are applicable (in particular, the Ontario corporation is not itself the registered owner of the subject realty, does no advertising and has no place of business, agent or representative in Manitoba). The only question is whether or not the Ontario corporation can be described as "otherwise carrying on its business or undertaking in Manitoba"?
The Manitoba Companies Office (which administers the Act) has advised the writer that it has no particular policy guidelines to answer this question. There is a paucity of case law on this matter, however there have been several Court decisions which deal with related or analogous situations. Consider the following:
- In Huber v. Pocklington Financial Corp. Ltd. (Nova Scotia Supreme Court Trial Division, 1982), the question was whether or not a corporation which was not incorporated in Nova Scotia, had no place of business and did not in any normal sense of the words, "carry on business" in Nova Scotia, should nevertheless be held to be carrying on business in Nova Scotia indirectly by reason of its holding virtually all of the issued capital stock of another corporation which was clearly resident in and carried on business in Nova Scotia. The Court held that the shareholding corporation was not carrying on business in Nova Scotia. The two corporations were separate legal entities.
- In Wilson v. Hull (Alberta Court of Queen's Bench, 1993), the question was whether or not an Alberta corporation was "ordinarily resident" in the State of Idaho in the context of a judgment obtained by an Idaho corporation which sold goods to the Alberta corporation, with the Alberta corporation breaching its contractual obligations under the arrangement and consequently sustaining a default judgment obtained by the Idaho corporation in an Idaho Court. The Idaho judgment creditor sought to have its judgment registered in Alberta. Under relevant Alberta law, the judgment debtor could stop registration of the Idaho judgment in Alberta provided that it could establish that the Alberta corporation was "neither carrying on business nor ordinarily resident within the jurisdiction of the original court (Idaho)". The Court held that the Alberta corporation was carrying on business in Idaho on the basis that "…part of carrying on business is paying for debts that are legitimately owed", and, the debt was payable in Idaho. The principal of the Alberta corporation had attended at the Idaho corporation's place of business to conduct negotiations at the beginning of the contractual relationship, but otherwise didn't "carry on business" in Idaho. In considering this case in the context of the question posed at the beginning of this paper, one should bear in mind firstly, that the matter did not relate to the question of carrying on or not carrying on business in relation to the need for corporate registration, and, secondly, that substantial justice was accomplished in this case because the Alberta corporation had clearly reneged on its contractual obligations without any valid excuse.
- In the Nova Scotia Power Corp. v. AMCI Export Corp. (Nova Scotia Court of Appeal, 2005), the question was whether or not a particular American incorporated corporation (operating out of Pennsylvania) was "resident out of the province of Nova Scotia"). Nova Scotia Power alleged that the Pennsylvania corporation was in breach of a contract between the parties under which the Pennsylvania corporation had agreed to sell coal to Nova Scotia Power. Nova Scotia Power launched a lawsuit in Nova Scotia against the Pennsylvania corporation claiming $11,000,000.00 damages. To secure its position, Nova Scotia Power sought to attach certain assets of the Pennsylvania corporation which were situated in Nova Scotia, but would only be entitled to the attaching order if it could be established that the Pennsylvania corporation was resident outside of the province. The Court held that the Pennsylvania corporation was resident in Nova Scotia, and with its assets in Nova Scotia, was resident, or at least sufficiently resident in the forum's jurisdiction so as to substantially eliminate the risk of the plaintiff not being able to realize on any judgment it obtained by virtue of the Pennsylvania corporation being outside "reach" of Canadian Courts. As with the Wilson v. Hull case, it must be kept in mind that this was not really a "carrying on business" case relating to the need (or the absence of the need) to extra-provincially register.
So what might we conclude concerning the above-stated original question? The writer's cautious conclusion is that the Ontario corporation, which does not meet with any of the indicia above stated (in The Manitoba Corporations Act) and which is a mere beneficial owner of the Manitoba realty registered in the name of the bare trustee Manitoba corporation, would not be required to be extra-provincially registered in Manitoba. The lack of discretionary and management powers held by the trustee (the hallmark of a bare trust) re-enforces this conclusion. But the word "cautious" is required because there is a meaningful - at least to the beneficial owner - "connection" between the beneficial owner and the Manitoba realty being held for it. A Court may at some time consider that that "connection" is sufficient to hold the Ontario corporation as "carrying on business" in Manitoba.
Edward (Ned) Brown is a Partner at Pitblado Law. He practices Business Law and has extensive experience in financial services and commercial real estate. Ned advises clients through both commercial and regulatory aspects of legal matters, specifically in areas of lending and secured transactions, banking law, subdivisions, and real estate development. You are welcome to contact Ned to get a second opinion on your corporate and commercial issues.